Neiman Marcus 2009 Annual Report Download - page 105

Table of Contents
fair value of goodwill for that reporting unit. If the recorded goodwill balance for a reporting unit exceeds the implied fair value of
goodwill, an impairment charge is recorded to write goodwill down to its fair value.
The goodwill impairment testing process is subject to inherent uncertainties and subjectivity. The use of different
assumptions, estimates or judgments in either step of the process, including with estimation of the projected future cash flows of our
reporting units, the discount rate used to reduce such projected future cash flows to their net present value, and the estimation of the
fair value of the reporting units' tangible and intangible assets and liabilities, could materially increase or decrease the fair value of the
reporting unit's net assets and, accordingly, could materially increase or decrease any related impairment charge. We believe our
estimates are appropriate based upon current market conditions and the best information available at the assessment date. However,
future impairment charges could be required if we do not achieve our current revenue and profitability projections or the weighted
average cost of capital increases.
As more fully described in Note 9, we recorded significant impairment charges in fiscal year 2009 to writedown our
tradenames and goodwill to estimated fair value.
Leases. We lease certain retail stores and office facilities. Stores we own are often subject to ground leases. The terms of our
real estate leases, including renewal options, range from 1 to 101 years. Most leases provide for monthly fixed minimum rentals or
contingent rentals based upon sales in excess of stated amounts and normally require us to pay real estate taxes, insurance, common
area maintenance costs and other occupancy costs. For leases that contain predetermined, fixed calculations of minimum rentals, we
recognize rent expense on a straight-line basis over the lease term. We recognize contingent rent expenses when it is probable that the
sales thresholds will be reached during the year.
We receive allowances from developers related to the construction of our stores. We record these allowances as deferred real
estate credits, which we recognize as a reduction of rent expense on a straight-line basis over the lease term beginning with the date
the Company takes possession of the leased asset. We received construction allowances aggregating $14.4 million in fiscal year 2010,
$10.0 million in fiscal year 2009 and $36.8 million in fiscal year 2008.
Benefit Plans. We sponsor a noncontributory defined benefit pension plan (Pension Plan), an unfunded supplemental
executive retirement plan (SERP Plan) which provides certain employees additional pension benefits and a post retirement plan
providing eligible employees limited postretirement health care benefits (Postretirement Plan). In calculating our obligations and
related expense, we make various assumptions and estimates, after consulting with outside actuaries and advisors. The annual
determination of expense involves calculating the estimated total benefits ultimately payable to plan participants. We use the projected
unit credit method in recognizing pension liabilities. The Pension and SERP Plans are valued annually as of the end of each fiscal
year. In the third quarter of fiscal year 2010, we froze benefits offered to all remaining employees under our Pension Plan and SERP
Plan.
Significant assumptions related to the calculation of our obligations include the discount rate used to calculate the present
value of benefit obligations to be paid in the future, the expected long-term rate of return on assets held by the Pension Plan and the
health care cost trend rate for the Postretirement Plan, as more fully described in Note 13. We review these assumptions annually
based upon currently available information, including information provided by our actuaries.
Self-insurance and Other Employee Benefit Reserves. We use estimates in the determination of the required accruals for
general liability, workers' compensation and health insurance. We base these estimates upon an examination of historical trends,
industry claims experience and independent actuarial estimates. Although we do not expect that we will ultimately pay claims
significantly different from our estimates, self-insurance reserves could be affected if future claims experience differ significantly
from our historical trends and assumptions.
Other Long-term Liabilities. Other long-term liabilities consist primarily of certain employee benefit obligations,
postretirement health care benefit obligations and the liability for scheduled rent increases.
Revenues. Revenues include sales of merchandise and services and delivery and processing revenues related to merchandise
sold. Revenues from our Specialty Retail stores are recognized at the later of the point of sale or the delivery of goods to the customer.
Revenues from our Direct Marketing operation are recognized when the merchandise is delivered to the customer. Revenues
associated with gift cards are recognized at the time of redemption by the customer. Revenues exclude sales taxes collected from our
customers.
Revenues are reduced when customers return goods previously purchased. We maintain reserves for anticipated sales returns
primarily based on our historical trends related to returns by our retail and direct marketing customers. Our reserves for anticipated
sales returns aggregated $25.2 million at July 31, 2010 and $22.9 million at August 1, 2009. As the vast majority of
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